Brexit decision time

What Brexit means – for the world and global mobility alike – should be clearer next week

The House of Commons, the United Kingdom’s lower house of parliament, will hold a series of votes next week on Brexit. The results should throw light on likely final outcomes, making it easier to imagine potential impacts on economies and global mobility issues, like cost of living and movement of people. However, the votes won’t provide all the answers and a lot will remain uncertain about Brexit, probably for years to come.

The first vote, on Tuesday 12 March, will determine whether members of parliament support the European Union Withdrawal Agreement so painstakingly negotiated by UK Prime Minister Theresa May and her team over the last two years – indeed, it is still being negotiated and its final form might not be known until shortly before the vote, although further big changes seem unlikely.

If a majority of MPs back May’s deal, there will be no need for the second vote scheduled for the day after, which would ask MPs whether the UK should instead leave the EU without a deal.

Should the second vote fail to pass as well, a third vote will be held on 14 March asking MPs, who by then will surely have no alternative, whether they wish to ask the EU for an extension to the leaving process (Article 50 was triggered by May’s government on 29 March 2017 giving the required two years’ notice of the UK’s intention to leave the EU on 29 March 2019), basically to give them time to sort out the mess.

Will May’s deal pass? This isn’t the first time she’s put it to a vote. When she tried before, on 15 January, she suffered the heaviest defeat in modern parliamentary history. To win on Tuesday she needs to turn 115 MPs, which sounds difficult to say the least. However, there are signs the vote could be tighter this time and May’s deal has a chance. It’s complicated, but her main hope lies in a block of around 70 Conservative Party MPs (the so-called European Research Group) who hate her deal but are die-hard fans of Brexit at any cost. They risk losing the chance of any Brexit if they refuse to back the Prime Minister’s version.

The hardliners risk losing Brexit completely because, if the second vote (on leaving the EU without a deal) needs to be held, as it would if May’s deal failed in the first, most MPs are almost certain to vote against such a risky venture. No serious projection of likely numbers has put support for ‘no deal’ anywhere near a majority.

If the second vote failed, MPs would surely pass the third vote on asking the EU for a delay to the UK’s leaving. The EU isn’t guaranteed to agree to such an extension, but again it seems very likely that it would, possibly stipulating a longer delay of nine months to a year because a shorter one wouldn’t be sufficient to break the stalemate among UK politicians.

The complication with a long extension which goes beyond 1 July would be that the UK would then need to participate in European Parliament elections – pointless if you’re going to be leaving the EU soon, but possibly a big opportunity for pro-EU forces to make a bold statement about remaining in the bloc.

The extension might depend on a further series of ‘indicative’ votes which would almost certainly be required if both May’s deal and ‘no deal’ had been ruled out. These would attempt to gauge support for other potential outcomes, such as a ‘softer’ Brexit, which might include the UK staying in the EU’s customs union and/or single market, or even another public referendum to confirm that the British people still want to leave the EU. The difficulty here is, what alternative to ‘Remaining’ would you put on the ballot? May’s deal? No deal? Both would by then have been dismissed as options by parliament, so some political chicanery would be required to rule one or both back in.

Even if May wins the first vote, the third vote would probably still be held, because the time left between Tuesday and the leaving date of 29 March will probably not allow for all the necessary legislation to be passed. In that case, assuming MPs back an extension request, the EU would probably agree to a shorter delay of two or three months to enable legislation to get through.

What would be the impact of the various outcomes?

The main reason May’s Withdrawal Agreement is so unpopular is that it satisfies almost no one. Hard-line Brexiters say it would turn the UK into a “vassal state” by requiring it to adopt numerous EU laws without any say in them. It would also seriously complicate Brexiter hopes for the UK to have an independent trade policy. Pro-EU campaigners, meanwhile, point out that the deal would mean losing all the trade advantages of single market membership, not to mention the free movement of people so valued by global mobility teams and many others, while gaining little in return. Even its vague provision of customs union attachment would only apply to goods, thereby doing nothing to protect the UK’s vastly dominant services sector.

There are many other problems with May’s deal too, but it does have one big plus, which has brought both businesses, British and European, and markets to show support for it, despite reservations. That advantage is the certainty that, if May’s deal wins through, nothing will actually change for a minimum of two years and possibly three or even more.

That is not to say that most businesses and economists would not prefer the UK to remain in the EU. Most undoubtedly would, as indeed would most people now it seems. But the road to overturning Brexit sounds hard and unpredictable, involving another divisive referendum which might even be lost. So what businesses especially want now, having already suffered three years of damaging uncertainty, is an end to the unpredictability. To a significant degree, through the stand-still transition, the deal would provide that.

Some of those dismayed by Brexit may also consider that the transition would buy a lot of time, not only to plan for when things do change, but also to hope that the future relationship between the EU and UK (which will be negotiated during those years, but could take much longer) can be forged in such a way as to preserve more of the advantages currently enjoyed by the UK through its EU membership. They need to be careful here, though, because the ERG MPs also seem to think they can move the final Brexit outcome their way during the transition, especially if they can remove Theresa May and replace her with a prime minister from their own ranks. While the stand-still will be welcome to many, therefore, it’s obvious the uncertainties surrounding Brexit would be far from over.

Exchange rates, inflation and cost of living

Nevertheless, if the Prime Minister gets her way on Tuesday, markets are likely to respond favourably and the pound will very likely appreciate in value. Since mid-February when it became obvious a vote on extending Article 50 would have to be held if May couldn’t get her deal through (thereby making ‘no deal’ a lot less likely), the pound has risen markedly, gaining more than 2% against both the euro and dollar. Further gains in the short term seem probable if either the first or third vote succeeds.

The economy could be boosted too as the added certainty could unleash considerable investment currently mothballed pending some sort of Brexit conclusion. Business investment has contracted during the last three consecutive quarters and is falling at rates not seen since the global financial crisis of 2008. Foreign investment in the UK is also suffering notably. A no-deal Brexit, on the other hand, will result in suspended projects being ditched completely or investors (and British businesses) going elsewhere.

For expatriate workers being paid at least partly in the diminished currency, such depreciation can amount to a substantial hit to purchasing power through conversion rates. It often, however, also brings a rise in import costs and inflation in the affected country, which can offset the exchange-rate factor’s impact to at least some degree when calculating expat cost of living. The UK, though, has a complex and diverse economy and inflation tends to rise less in such countries in the aftermath of a currency slump than it often does in less developed economies. Inflation did rise in the UK following the referendum, from almost zero to a peak of 3.1% in November 2017, but that was nowhere near high enough to offset the effects of the devalued pound. For most outbound expats from the UK the overall result was a significant rise in cost of living indices, with the reverse being true for inbounds. We would expect the same to occur in the event of a no-deal Brexit. Even if our forecast of a 15%-20% drop in sterling exchange rates came to pass, inflation would certainly rise, perhaps to around 4%, but it would be likely to fall back as weaker demand in the shocked economy took its toll on spending and prices.

Movement of people

Immigration was undoubtedly a core issue behind the vote to leave the EU. Despite a huge amount of evidence showing EU workers to be a considerable boon to the UK economy, the bulk of the British press and many politicians for decades preferred to promote negative and often prejudicial stories about wayward immigrants and pressure on social services instead. The result is a strongly-held dislike of the freedom of movement inherent in single market membership in many parts of the UK.

Indeed, at times it has seemed that Theresa May interpreted the leave vote primarily as a reflection of a desire to end freedom of movement. If the Withdrawal Agreement passes next Tuesday, during the transition at least, little will change and EU nationals will still have the right to move to the UK to work, and vice versa. However, after the end of the transition period (currently slated for 1 January 2021, but with the possibility of extensions), the UK would adopt a new points-based immigration system focusing on “talent rather than nationality”, according to Home Secretary Sajid Javid. There would also be a salary threshold of a minimum of GBP 30 000 per year. Under the scheme, foreign workers likely to be earning less than this would only be eligible for 12-month working visas and only if from “low-risk countries”, as yet unspecified.

While there would be exceptions, such as assignees on graduate schemes or some from low-income countries, most of the staff being assigned by global mobility teams will earn more than the GBP 30 000 threshold. However, the bureaucratic process of applying for visas and work permits will be more cumbersome and costly than practitioners are used to with intra-EU moves. It may also be more complicated to move British nationals into the EU after Brexit. Long-term EU nationals resident in the UK and British nationals in the EU have their current rights protected under the Withdrawal Agreement, although again, substantial paperwork is required to ensure recognition of those rights.

If global mobility teams find after Brexit that it is more difficult to assign EU nationals to the UK, they may actually find it easier to move non-EU ones, caps on whose numbers are likely to be lifted. There will no longer be preferential treatment for EU workers, so, even if overall quotas are put in place, there should be more room within them for staff from the rest of the world. Indeed, a shift is already happening. Such was the message that the UK sent to EU citizens via the referendum result that numbers wanting to come to Britain have fallen greatly. As employers still need staff, they have increased recruitment considerably from outside the EU. If immigration really was the problem that caused Brexit, it doesn’t look like leaving the EU will solve it.

Conclusion

The votes next week will of course be hugely important to Britain’s future and, to a lesser extent perhaps, the EU’s. They could ultimately result in several different scenarios ranging from a catastrophic no-deal Brexit to opening the door to another referendum which could reverse the whole thing. Prime Minister May’s Withdrawal Agreement is possibly the most likely to pass, but it is far from certain to do so. Unfortunately, none of the potential outcomes will yet provide the certainty businesses, people and global mobility teams need, but some are clearly better than others. What is clear, for global mobility teams at least, is that barring an unlikely no-deal scenario, which would cause serious shocks and difficulties for everyone, all outcomes are perfectly manageable if the time to plan and adjust is available, as it should be.

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